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Asymmetric capital-tax competition, unemployment and losses from capital market integration

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Abstract

In a multi-country general equilibrium economy with mobile capital and rigidwage unemployment, countries may differ in capital endowments, production technologies and rigid wages. Governments tax capital at the source to maximize national welfare. They account for tax base responses to their tax and take as given the world-market interest rate. We specify conditions under which - in contrast to free trade with undistorted labor markets - welfare declines and unemployment increases in some countries (i) when moving from autarky to trade without taxation and/or (ii) when moving from trade without taxation to tax competition.

Suggested Citation

  • Rüdiger Pethig & Frieder Kolleß, 2009. "Asymmetric capital-tax competition, unemployment and losses from capital market integration," Volkswirtschaftliche Diskussionsbeiträge 137-09, Universität Siegen, Fakultät Wirtschaftswissenschaften, Wirtschaftsinformatik und Wirtschaftsrecht.
    • Handle: RePEc:sie:siegen:137-09
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    More about this item

    Keywords

    capital taxation; asymmetric tax competition; rigid wages; unemployment; losses from trade;
    All these keywords.

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H87 - Public Economics - - Miscellaneous Issues - - - International Fiscal Issues; International Public Goods
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
    • R13 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - General Equilibrium and Welfare Economic Analysis of Regional Economies
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements

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